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  • The economic value of our bioresources assets

    In April 2017 Ofwat asked Water and Sewerage Companies (WaSCs) to estimate the economic value of their bioresources assets in preparation for a separate bioresources price control from April 2020. 

    The Regulated Capital Value (RCV) is an estimate of the value of a regulated business which is used to calculate the appropriate level of returns for investors, a key element of the price control process. 

    The Modern Equivalent Asset Value (MEAV) provides an estimate of the cost of replacing all the assets used in a regulated business with their modern equivalent.  The economic value of an asset can be derived from the net income that an asset generates over time.  

    Our estimates of our proposed RCV allocation at March 2020 reflect the economic value of our assets which required us to estimate our costs for the asset processes for the modern equivalent. 

    In September 2017 we submitted our initial estimates of the RCV allocation to Ofwat for review. Following feedback from Ofwat in February 2018 we have revised our RCV allocation and resubmitted this with our PR19 business plan in September 2018.

    The following table presents our updated RCV allocation for the price view in 2019 (PR19) accounting for all adjustments:

      £ million
     Gross replacement value of our existing bioresources assets at 2017 (rolled forward from 2014/15 data) 387.113
     Net value of our existing bioresources assets at 2017 (NMEAV - rolled forward from 2014/15 data) 157.610
     Our estimate of the overall gross valuation of a theoretical new entrant's bioresources assets (GMEAV) at March 2020 177.699
     Our proposed RCV allocation at March 2020 115.588

    To arrive at these estimates, we relied on Ofwat’s guidance and followed its suggested five-step process. 

    In doing this, we first set out our existing bioresources assets and strategy, before considering what modern equivalent assets would be built by a new entrant, unencumbered by previous decisions and historic technologies.  These were then costed, to determine a gross valuation, before we made adjustments to these cost estimates to reflect our existing assets and commercial arrangements currently in place.  

    We were then able to consider what the impact of this new valuation would be on customer charges, before undertaking a number of cross-checks and considering whether we should have used alternative approaches. 

    Throughout the process, we checked and re-checked our workings and assumptions. Our approach was then reviewed externally by economic consultants and our auditor.

    Bioresources market information 

    To allow third parties to identify market opportunities and to facilitate discussions between ourselves and other parties we are required to publish each year data on sludge production from our sewage treatment works and details of our sludge treatment facilities.  At the same time we have to publish information on any contracts for bioresource services we have agreed with third parties together with information on any activity we are aware of within the market. 

    These tables contain contain this information for the financial year 2017/18.

    If you are interested in providing a service to transport, treat and/or recycle the bioresources we produce at our sewage treatment works, or if you would like us to offer provide you with a competitive transport, treatment and/or recycling service for any organic waste your organisation produces, please contact us at bioresources@wessexwater.co.uk

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